Broadband Era Deferred?

Is advertising waiting for broadband or is broadband waiting for advertising?

Conventional wisdom maintains that online advertising will really take off when the pipes get fatter for more people. The theory is that all boats will rise along with the bandwidth: development budgets, big brand spending and the Internet’s legitimacy as an ad platform. When online ads can demonstrate the same emotional power as TV and the ROI of direct response all at once, it’ll be a whole new ballgame… or so they say.

But if a revolution in interactive advertising is coming, precious few in this industry seem ready to exploit it. When it comes to designing advertising for high-speed access, "The places where this is happening are few and far between," says Bruce Carlisle, president and CEO of SF Interactive. "Nobody is out there committing the time and resources to figuring out how to make it work."

Even at the mother of all broadband delivery channels, RealNetworks, streaming ad sales constitute "a fairly small business at this point," as VP of advertising sales Dan Schwartz admits. "It’s a nice little business right now, and we believe it will be a nice big business." Of course, we’ve been waiting for streaming to become a big business for several years now. Yet, to look at the raw ad spending numbers, the needle is barely budging. After a solid year of hype and a host of compelling executions and brand effectiveness research, even medium- and low-band rich media ad spending still only amounted to 3% of online ad sales by the end of 2001, according to the Interactive Advertising Bureau. AdRelevance says that so far in 2002, only 4% of ad impressions are rich media.

It’s the same old Web story. The metrics say that the eyeballs are here but the advertisers have yet to follow. RealNetworks claims that it has an inventory of 40 million streaming video ad impressions deliverable each month, up from 10 million at the beginning of the year. Arbitron and Edison Media found earlier this year that 40 million people stream audio or video to their desktop each month. Nielsen//NetRatings estimates 21 million at-home broadband users — a 90% increase in the past year. Add to that the near-ubiquity of high-speed pipes at work and school, and various estimates place high-speed Web access at 37 million (Jupiter) to 41 million (@plan), or about a third of the U.S. online population. So, what exactly are advertisers waiting for?

The Triple Whammy

Until about a year ago, the rhetoric and research about the nirvana of broadband for advertisers ran hot and heavy, but those prospects have been hit from all sides lately: an economic recession, what some call an advertising depression, slower-than-expected home penetration of high-speed access, and, frankly, interactive advertising’s lingering bad rep. No one is in the mood to experiment, especially not in the current economy and especially not online.

"Everybody is looking towards [broadband], but the barriers today are the price performance ratio. We all know advertising itself has been struggling, so coming out with a product that has a higher price to it has to have higher performance ratios to it, then there are the production costs," says Rick Hutton, senior director for multimedia and mobile services at Lycos.

There is also an embarrassment of marketing riches right now, says Jon Klein, CEO of streaming news provider The Feedroom. Ad execs tell him, "We’re just overwhelmed with a tide of options washing up on our doorstep and we don’t have time to pay attention."

There may also be a crisis of confidence in broadband, even among those who should be evangelizing the hardest. Lycos, for instance, which otherwise heavily promotes its rich media offerings, maintains that once you parse the site’s high-speed access audience into more targeted niches, "you get down to a smaller value proposition," Hutton says. And even at RealNetworks, Schwartz says, "the critical mass still isn’t there." For the biggest brands, who demand the longest reach to justify their development budgets, "we’re just beginning to have something to talk to them about," he says. "It’s going to be a while before we can go toe-to-toe with a large cable network."

For now, most agencies and sites are focused on designing for mixed audiences. Ask about broadband development and most agencies, tech companies and sites prefer to talk about how well they can compress the first 50K screen of a large format unit to load in under five seconds on a 56K connection, not how lush the experience is for high-speed users. "The disappointing part is that substantial parts of the market still don’t have broadband," says George Gallate, CEO, Euro RSCG Interaction. For the time being, it is prudent to design medium-rich ads that can play across the available user bandwidth spectrum.

Cowed by plummeting ad budgets as well as myths of online’s ineffectiveness, the industry remains in the fetal position regarding broadband. Even those with large high speed audiences seem reticent to challenge media buyers with new formats, let alone talk about a "broadband audience" for fear of cutting themselves off from the critical mass the Web does seem to have in narrowband.

Take, for instance, KlipMart, which re-purposes TV spots to run in a Java applet. On most of its campaigns 90% of viewers are coming in through broadband connections. Nevertheless, KlipMart CEO Chris Young sells the fact that his technology works on 93% of browsers and across all connections speeds. "If I were just a broadband-dependent product I would say it just works on 40%, and that is not a compelling pitch for the advertisers and a much harder sell," he says.

But It’s Here…Really

"It’s a crazy statement to make that penetration isn’t there," says Maggie Boyer, VP of media at Avenue A. "We absolutely think that it’s a valuable audience, and there is critical mass to plan media against." She not only looks to this sector for specific demographics (early adopter, high income, etc.) but also looks to it for placing rich media campaigns that involve high consideration products such as cars and home theater.

Many claim that the ad inventory is already here and waiting to be used. KlipMart serves about 20 million TV spots online each month. The Feedroom - 15 million streams to over 3 million uniques each month. "[Broadband has] the ability to reach 50 million according to Nielsen who are streaming on a regular basis," Boyer says. "Thirty million are at work and 14 million stream to school. Those are huge audiences that have never been easy to reach."

Indeed, high-speed access in the workplace represents a large and increasingly viable audience, and it may well be the first area broadband advertising takes hold as a discrete target for development. When BMWFilms ran its legendary series of brand-promotion short films, "The Hire," last year, it netted 13 million film views. The company discovered in the process that half of its visitors had broadband access and that many were accessing at lunchtime from work, and they were in the $75,000 and up target BMW needs. The company is launching the second film series in October.

Often overlooked in discussions of broadband is the growing role of fat pipe promotion in the B2B arena where an office-based high-speed audience is more predictable and the need for complex messaging is greater. Boyer targets this segment for rich-rich media treatment. In fact, IDG’s tech site, ITWorld, shifted its business and ad model entirely last year to custom webcasting for clients like 3Com and Intel, which spend $40,000 and up to stream advertorial video.

Broadband Theory: To Click or To Stream

Even when high-speed access does reach indisputably deep penetration, it remains unclear what forms broadband advertising might take, especially since so little experimentation and hard research is being done now. The delay in broadband acceptance and supporting research has also forestalled what could be a titanic debate: whether fat pipes invite greater passivity in ad viewers or hyper-interactivity among ad users.

Not surprisingly, streaming media networks such as Real are banking on TV-like video, what Schwartz calls "active broadcast." "I really believe streaming video will be the dominant Internet format five years from now," he says, arguing that fat pipe ads should look a lot like the medium from which it is most likely to siphon ad dollars. "Think of this as TV," he says.

Despite persistent resistance from agencies, who insist that high degrees of interactivity are key to any form of Web advertising, Klein evangelizes the sheer emotive power of large-sized video, even on the PC. "Don’t overthink this," he argues with clients. The experience at the Feedroom is that users did not like or use a lot of the interactive functionality originally built into the console. They will click on an ad that interests them, says Klein, but that’s about it. "Video has an aphrodisiac effect on the viewer. It redirects their need to interact." In fact, Klein recommends that clients not spend any money on original creative for streaming ads but just place their shorter TV ads online with him.

It is easy to see why Klein struggles against client pushback on this notion, because most agencies and rich media technology companies are banking on a very different vision of what fat pipes portend. "Taking a TV ad and slapping it onto the Web because we have broadband is careless," says Gallate. "I would say it shows a complete naiveté about what the Web is." He sees in broadband the prospects for bringing the Website to the user rather than luring the user to the Website. He wants to see B2B ad units that can stream in the latest corporate press releases or other fresh content, not just video. He foresees auto ads in which users build their own car and get the name of a local dealer without leaving the ad cell. "The opportunity being missed is putting the receiver of the advertising message in control of the message he receives," says Carlisle.

Likewise, Mark Gray, EVP sales of rich media technology supplier Viewpoint, is hoping that broadband brings together the rich media pieces that have existed separately so far: 3D graphics, Flash, video streams, and audio. "We’ll be looking at an online experience that frankly I don’t think anyone has dreamed up yet," he says.

What’s Working

Truly, much of the promise of bandwidth remains the stuff of dreams and theoretical debate. While there is anecdotal evidence that broadband advertising works, and we can extrapolate somewhat from the successes of existing rich media formats, there is little solid research that sites can bring to media buyers. "I don’t have a body of evidence that broadband ads work better," says DynamicLogic’s CEO Nick Nyhan. "I think the industry stopped hyping broadband because it seemed that it was becoming hype instead of real progress. The industry maybe overplayed it early and now they are just letting it happen without a lot of talk."

Klein claims an average CTR of 5% on Feedroom ads, although 75% of his spots are Flash animations of some sort. Likewise, KlipMart’s TV ad streams realize between 3% and 5% direct response. Of course, everyone is quick to argue that the real value proposition in broadband ads will lie in the more traditional offline metrics, brand lift, reach and frequency.

Broadband advertising favors complex product types that require denser messaging. Klein is seeing a good deal of interest from pharmaceuticals, including his major client Nexium. And while recent industry statistics show that the automotive sector is leading the way in rich media buys, some expect to see the entertainment media become a more important driver. Virtually every major film release has a streaming media campaign attached to it now. Fox’s syndication cable channel advertises with Klein, and all of the major movie studios are now using Real as well as KlipMart.

For those who doubt broadband’s targeting value, some agencies point to success on the business-to-business side with streaming media ads into niche audiences. Gallate says his campaigns for Intel have worked very well. Tightly targeted, highly interactive very rich media "really gets across the message our client wants," he says. "the ROI is tremendous."

Fat Pipe City

Is waiting for broadband advertising really just a penetration game, a matter of the high speed customer base, especially in the home hitting numbers that pull attention away from the TV upfronts and toward a fat pipe buy in? Real’s Schwartz thinks that getting home penetration above 20 million may be an important psychological milestone for the industry, because "then you are at the point where cable was in the mid-80s, and that was when there was the cable explosion." Nevertheless, history shows that ad dollars do not necessarily follow eyeballs until a convincing case is made to do so. Broadband use is already here in the office, says Michael Hoydich, VP online sales, Viewpoint, but the research is not. "It’s a matter of building case studies to push it," he argues. Klein agrees and is in the process of assembling more compelling research and stats for his pitches. "The battle is won by finding the people who understand the effectiveness of this, one agency at a time, one client at a time, and make sure we deliver results."

Rather than greater penetration, clients may be waiting for proof of concept and reliable formats. "It’s not the bandwidth side, it’s the supply side, and most of that has been the technology and the cost of delivery," says Lycos’ Hutton. "What needs to take place is more standardization around MPEG-4 or something like that." But as the industry contracts, and the big ad houses re-absorb their spun-off interactive units, how can we expect innovation of any kind, let alone fliers into untested formats, on an unproven channel, and in a medium that for the time being everyone loves to hate? According to Carlisle, real development in broadband ad formats is going to have to come from the dedicated interactive agencies, or at least what’s left of them. They know the medium better and have an incentive to innovate that the larger mainstream agencies do not. "What do big agencies really care about from a creative standpoint? They care about going to LA and shooting a TV commercial," he chides. The real challenge may not be fattening the Internet’s pipes so much as opening up agency bandwidth.

This article first appeared in the September edition of MediaPost's MEDIA Magazine

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